Chapter 1 Missing the Wood for the Trees: Drug Price Control and Pharmaceutical Policy 2002

8/7/2019 Chapter 1 Missing the Wood for the Trees: Drug Price Control and Pharmaceutical Policy 2002

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CHAPTER 1

MISSING THE WOOD FOR THE TREES:

DRUG PRICE CONTROL AND PHARMACEUTICAL POLICY 2002

-S.Srinivasan and T.Srikrishna

This chapter, now revised, was written in Sep 2003 when the threat of the

Pharmaceutical Policy 2002 was imminent. However with the new Union MinisterPaswan taking a more consumer-oriented stand, the threat has apparently receded for

the time being. However the lobby for free trade and competition and decontrol of

prices is very strong though medicine prices may be controlled in even the so-calledfree market countries. This chapter and others in this book show that free competition,

or what goes by its name, does not, in India, produce reductions in drug prices thatbenefit a majority of consumers. The successive policies of drug control in India since

1978 have resulted in decontrol of more and more of essential drugs and resulted inoverpricing. Instead of balancing industry and user interests, and giving primacy to the

patient when such a balance cannot be achieved, the PP 2002, like its immediate

predecessors, is focused, on rolling out the red carpet for the pharma business in India.

1) Basis of Controls

Even as large Indian drug companies have even made international pharma majors rueabout HIV/AIDS drug pricing in South Africa, the average poor Indian finds the costs of

drugs unaffordable. For many, getting sick in India and buying medicines is a sure routeto further impoverishment and penury

1. Many people are forced to sell their cows,

1

The Reserve bank of India (RBI) Rural Indebtedness survey of late eighties showedthat amongst non-production loans healthcare was the first reason and amongst all loans

it was the 2nd reason for indebtedness. The 52nd NSS Round on morbidity, utilizations

and expenditure records indebtedness due to hospitalization. NSS 42nd and 52nd roundand various other surveys show that between 15-40% of reported morbidities were

unattended because of economic reasons. The Rural Labour Enquiry Report On General

Characteristics Of Rural Labour Households (55th

Round Of N.S.S.) 1999-2000 showsthat men (women) on the average worked for 222 (122) wage days in a year and lost 31

(77) days in a year due to sickness. See

http://labourbureau.nic.in/RLE992k%20GenChar%20Annex%20I.htm. The averageearnings for all households for men ranged from Rs 40 to Rs 54 (Rs 28 to Rs 34 for

women) and at least 25 percent of rural households were indebted at any point of time.


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buffaloes and even homes whenever they try to access health services. Health care is

the second leading cause of indebtedness in rural areas of India.2

Drugs are overpriced and unaffordable; margins are extremely high as we show below;

and more players in the drug business has not resulted in lower prices of drugs.

And left to itself the pharma industry both in India (and the world) has shown little

inclination to reduce prices voluntarily or make even essential drugs at affordable prices.

It is for these reasons the Hathi Committee (1975) appointed by the Government of India

recommended price controls and production controls. Underlying in therecommendation is the analysis that the market free markets are poor arbiters of the

interests of the poor.

Bitter pill: Drug price control is an anomaly, says

new NPPA chiefKGNARENDRANATH, TIMES NEWS NETWORK[ FRIDAY, APRIL

09, 2004, 11:29:14 PM ]

NEW DELHI: There is reason for drug companies to cheer.Vinay Bansal, the new chairman of the National

Pharmaceutical Pricing Authority (NPPA), is a firm believer indoing away with controls on prices of medicines.

In an exclusive interview with ET, he stressed that price

control on drugs was an anomaly that would eventually be

removed altogether.

I have no doubt whatsoever that controlling prices of anycommodity is an anomaly in a market-driven economy, MrBansal said. The chairman of the drug pricing body said this

when his attention was drawn to the fact that price control has

resulted in companies opting out of production and sale ofcontrolled drugs, creating the problem of availability of

important, and at times, irreplaceable medicines. The

governments twin objectives of ensuring availability andaffordability of medicines can be mutually exclusive, the

official, noted.

With such friends in the Government, who needs enemies?

2) Reduction of Price Control Basket of Drugs

2

For a contemporary journalistic reportage, see: P.Sainaths Anatomy of a Health

Disaster, The Hindu, July 1, 2004 and The Poverty of Fiction, in Frontline, Feb 28-

Mar 12, 2004.


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Price controls have been systematically reduced over the years (see Table 1 forComparative Chart Summarizing Price Control Scheme under Various Drug Price

Control Orders). This is because of a significant paradigm change among policy makers

in their view of business and industry. It is now felt that controls both production and

price discourage industry and therefore they should be cut down. Production controlshave now mostly gone except for bulk drugs produced by the use of recombinant DNA

technology, bulk drugs requiring in-vivo use of nucleic acids, and specific cell/tissue

targeted formulations. Price control has remained, albeit in a diluted form, and it was the

stated aim of the Pharmaceutical Policy of 2002 (henceforth PP 2002) to reduce therigors of price control. It was widely expected by industry that about 30 to 34 drugs

alone will remain under price control. (See Chapter 8, Drugs Likely to go out of Price

Control after PP 2002 and the ones Remaining)

Table 1: Comparative Chart Summarizing Price Control Scheme under Various

Drug Price Control OrdersDPCO1979

DPCO1987

DPCO1995

PresentOct 2003

1

No of drugs under PriceControl

347

142 76 74

2

No. of categories under whichthe above

drugs were categorised

3 2 1 1

3 MAPE % allowed on

normative/ National exfactory

costs to meet Post-

manufacturing expenses and toProvide for margin to the mfrs.

Category I

Category II

Category III

(Single ingredient Leaderproducts)

40%

55%

100 %

75%

100%

N.A.

100%

N.A.

N.A.

100 %

4 Total Domestic pharma sales

covered under Price-Control(Approx)

90 % 70 % 50 % 36 % (?)

N.A. = Not Applicable

But as we will argue and show below that this is going to the other extreme and has had,

and will have, deleterious effects on let alone the poor, but even the middle class of India.


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Even the so-called free market countries of the EU and UK have some form of controls

price controls, volume controls and cost-effectiveness controls. Whereas Indian policy

makers are intent on throwing out the baby with the drug price control basket.

3)Competition doesn't always lead to lowered prices3

The basic premise of removing price controls has been that competition will lower pricesand that a free market exists now that we are in a post-liberalisation era, at least more free

compared to earlier times. For example the document Modifications in Drug Policy1986 had this criteria: Drugs in which there is sufficient market competition viz. at least5 bulk drug producers and at least 10 formulators and none having more than the 40%

market share in the Retail Trade (as per ORG) may be kept outside the price control.

In reality prices of drugs have been constantly on the rise4.

There is no free market operating in the area of medicines, in pharmaceutical industry

and in health and hospital services sector. The buyer/end user namely the patient has nochoice. Informed choice involving techno-scientific issues is not possible for the lay

consumer. The doctor/prescriber instead makes the choice for the consumer. The

consumer has no easy way of evaluating doctors prescriptions and advice. Both theseassumptions of a free market and that of competition reducing prices are contestable.

Table 2 gives further justification of our assertion of weak and imperfect competition. Ifwe go through the column on market share it shows that for most of the products, around

40 50 % of the market share is cornered by the leading 3-4 products. This happens in

almost all the products. All the drugs mentioned in the table are antibiotics andantibacterials of one kind or the other. All but one namely cephataxime will be out of

price control as per PP 2002.

In all these (in Table 2) we find that the top-selling brand of a particular category often is

also the higher priced and most of the times the highest priced. The brand leader is also

the price leader. If true competition and free market characteristics were present, thebrand leader, that is the top selling would almost always sell at the lowest prices. The

conclusion to be drawn is that competition does not always work in pharmaceuticals in

the retail market in bringing down the prices, especially when there are many players, and

therefore price control is necessary. Competition seems to work in bringing the price ofthe monopoly producer in the early stages of the product life cycle of a drug formulation.

3See the accompanying chapter in this volume: Pharma Pricing in India: a failure of the

Market (s)?4

See for example the article Continuing Rise in Drug Prices- Brand Leaders Show theWay by Wishvas Rane,Economic and Political Weekly, July 24-30, 1999. Also see

Ranes Have Drug Prices Fallen?. Economic and Political Weekly, November 1, 2003)


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But when the company knows that the sensibilities of the consumer/patient can be played

upon, then the same drugs are priced to attract the high-end consumer.

For competition to work, a referee is needed in the form of an efficient regulatory agency

with teeth an agency that responds to market signals with alacrity. (The fact that

competition does not lead, necessarily, to lowered prices in the pharma sector has beenacknowledged by no less than a former chairperson of the National Pharmaceutical

Pricing Authority, Mr Arun Kumar. See interview with Shri Arun Kumar, The EconomicTimes, Sept 5, 2000. )

Considering the pharmaceutical market, where the products many a time - determine

life and death, it becomes imperative that a different kind of marketing structure be

prevalent, keeping in mind that high cost often means a choice between living and dying.

We believe that even though marketing creativity in the market should be rewarded, it

should not be unreasonable to the extent that the inefficiencies and marketing overheads

of the market leader be rubbed off on to the consumer. For that is what we are doingwhen we legitimise a higher price of a brand: reward a company for its inefficiency and

inability to sell at a lower price thereby increasing the costs of health care.


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Table 2: Antibiotic Brand Leaders, Market Share and Price Behavior: A Brief

Overview

Drug Product Market

Turnover of

Product

in Rs

crores

Brand Name

of ProductLeader (s)

Market

Shareof

Produc

t

Leader

(in %)

Produc

tLeader

is Price

Leader

?

Remarks

Cefataxime

Injection

122.02 Taxim 63% Yes

Ceftrioxone

Injection

136.01 Monocef 35 % No Price Leader is

Becef

Cefuroxime

Tablets

12.82 Ceftum 38 % Yes

Cephalexin

Capsules171.26

Phexin69 %

No Price LeaderCeff is 10 %

more costlierSporidex No

Amoxycillin

Capsules212.45

Mox47 %

Yes

Novamox Yes

AmikacinSulphate Inj

69.12Mikacin

68 %No

Amicin No

ChloramphenicolCapsules

41.31

Chlormycetin

86 %

Yes Chloromycetin

is the costliestEnteromycetin Yes

Paraxin Yes

Kemicetine Yes

Ampicillin +Cloxacillin Caps

109.05Megapen

78 %No

Ampoxin No

Ciprofloxacin

Capsules

272.35 Cifran

56 %

Yes Four brands

dominate the

market; the

product iscostly; but still

would not be

in price controlas per PP 2002.

Currently in

price control.

Ciplox Yes

Ciprobid Yes

Alcipro Yes

DoxycyclineCapsules

63.35 Microdox46 %

Yes

Doxy - 1 Yes

Roxithromycin

Capsules

97.60 Roxid49 %

Yes


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ErythromycinTablets

95.41 Althrocin84 %

Yes

Erythrocin No

Azithromycin 62.71 Azithral 30 % Yes

Norfloxacin

Tablets

53.09 Norflox 61 % Yes

Gentamycin 38.08 Genticyn 33 % Yes(All data as per ORG-AC Nielsen Retail Audit, Oct 2003)

4) Overpricing of 5000 percent and more

Bids for tender prices one knows are severely competed for and the prices quoted can be

taken as benchmarks for the lowest possible prices as no manufacturer will supplydrugs at a loss. Therefore a comparison of these prices with retail market prices will

clearly give an idea of the amount of overpricing, or value added, or post-manufacturing

margins. Comparisons of the tender prices quoted for the well-regulated, quality

conscious, transparent Tamil Nadu Medical Services Corporation (TNMSC) showsestimated overpricing, or post-manufacturing markup, to the extent of 5000 percent. See

below, Table 2 A Comparison of Tender Rates and Retail Market Rates5

. TNMSC

has a good quality check system for anybody wondering how these drugs can be made

and marketed at such low costs. From the authors experience of low cost medicine

production, we can say with confidence that these prices are feasible and possible.

The prices given in Table 3 are for the strip/blister packs and price of bulk packs are even

lower. Some comparisons of prices of LOCOST Baroda, a not for profit public trust

making medicines and market prices are given below (Table 4). LOCOST does not givetrade margins, as its sales are direct to those who are working on the field. Again this

indicates the scope for the amount of profit and trade margins. In the table below,manufacturers can and give generics at the lowest possible price to the trade but often

price it with high margins (MRPs). (See also P A Francis. High Profiteering InGenerics, Pharmabiz, Editorial, September 20, 2000. The latest successful bids of

TNMSC - Approved L1 Rates for the Supply of Drugs & Medicines for the Period from

01-11-2003 to 31-03-2005 - are available at http://www.tnmsc.com/system.htm).

5

See also Srinivasan, S. How Many Aspirins to the Rupee? Runaway Drug Prices,Economic and Political Weekly, February 27-March 5, 1999


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Adapted from: Srinivasan, S. How Many Aspirins to the Rupee? Runaway Drug

Prices,Economic and Political Weekly, February 27-March 5, 1999.

Table 3: A Comparison of Tender Rates and Retail Market Rates

DrugName

(1)

Name of Firm

(2)

TenderRate

(Rs)

(3)

Unit

(4)

Mfr.

(5)

Retail

Market

Price

(Rs)

(6)

Over-

price

Index

Col

(6)/(3):

(7)

Tender

Rate aspercen

t of

Retail

Mkt.Price

(8)

Albendazo

le Tab IP400 mg

Cadila

Pharmaceuticals PLtd

22.601010

tabletsTorrent 1190 52.65

1.89

Bisacodyl

Tab IP 5

mg

Lark Laboratories (I)Ltd

16.501010tablets

German

Remedie

s

717 43.45

2.30

Alprazolam Tab IP

0.5 mg

Bal Pharma Ltd 3.50 1010tablets SunPharma 141.5 40.43

2.47

Diazepam

Tab IP 5mg

Pharmafabricon/LOC

OST3.05

1010

tabletsRanbaxy 92.5 30.33

6.26

Folic acid

andFerrous

Tab NFI

Aurochem India PLtd

5.891010tablets

SmithKline

148.5 25.21

3.97

Amylodipi

ne Tab 2.5mg

Lark Laboratories (I)

Ltd 9.10

1010

tablets Lyka 148.5 16.32

6.13


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Table 4: Shocking Margins - A Sample Comparison of Generic Medicine Prices and

Retail Prices

No NAME OF DRUG Strength USE LOCOST,Baroda Price

June-Sep 2003

MRP ofStandard

Company as

per DRUG

TODAYApril-June 2003

1. Albendazole Tabs 400 mg Against

worminfestation

Rs 11.00 per

strip of 10 Tabs

Rs 9.00 per Tab

(strip of 1 Tab)

2. Amlodipine Tabs 5 mg Anti hyper-tensive (for

high BP)

Rs 2.50 perstrip of 10 Tabs

Rs 21.77 perstrip of 10 Tabs

3 AmoxycillinCapsules

500 mg Antibiotic Rs 19.75 perstrip of 10 Tabs

Rs 68.60 perstrip of 10 Caps

4 Atenolol Tablets

50 mg Anti

hypertensive (for high

BP)

Rs 2.80 per

strip of 14 Tabs

Rs 20.00 per

strip of 14 Tabs

5 Enalapril Maleate 5 mg Anti

hypertensiv

e (for highBP)

Rs 3.00 per

strip of 10 Tabs

Rs 22.58 per

strip of 10 Tabs

6 FluconazoleCapsules

150 mg Antifungal Rs 35.00 perstrip of 10 Caps

Rs 29.50 percaps (Strip of 1

Cap)

7 Glibenclamide

Tablets IP

5 mg Anti

diabetic

Rs 1.50 per

strip of 10 Tabs

Rs 3.73 per strip

of 10 Tabs

8 Metformin Tablets 500 mg Anti

diabetic

Rs 3.00 per

strip of 10 Tabs

Rs 6.45 per

Strip of 10 Tabs

9 Paracetamol Tabs

500 mg

500 mg Fever

reducing

Rs 2.00 per

strip of 10 Tabs

Rs 6.90 per strip

of 10 Tabs

10 Rifampicin Capsules 450 mg Anti TB Rs 32.00 per

strip of 10 Caps

Rs 59.12 per

strip of 10 Caps.

*** - from LOCOST Price List (Jun Sep 2003)*** - from DRUG TODAY (April - Jun 203)


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4) Same Drug: Different Prices in the Market6

4.1 The same drug is available at different prices in the market. Given below are

examples of three commonly used drugs: amlodipine, an antihypertensive; and

antibiotics, ceftriaxone and ciproflaxacin. (See Chapter 3 for more discussion on thistrend).

In the case of amlodipine the table below shows a 862% difference between the cheapest

and the costliest in a drug with at least 40 formulators. The multinational has the drugwith the maximum price. See Table 5.1 below.

In the case ofInj. Ceftriaxone, there is a 326 % between drugs (see Table 5.2). And inthe case of the commonly used antibiotic, ciproflaxacin (a drug originally under price

control and subsequently the subject of a dispute between the pharmaceuticals and the

government, with the case being decided in the Supreme Court in August 2003 in favour

of the Government of India.), the price difference is atleast 218 percent out of a total of87 Brands listed in CIMS (see Table 5.3).

Table 5.1: Different Prices of Amlodipine

Drug Brand name Company Price per tab. of

5 mg*

Amlodipine 5 mg. Amlogard Pfizer Rs. 4.81

Amlodipine 5 mg. Stamlo Dr. Reddy's Rs. 2.47

Amlodipine 5 mg. Amlogen Alkem Rs. 1.20

Amlodipine 5 mg. Amlodac Alidac Rs. 0.50

Source of prices: April-June 2002 edition of CIMS

Table 5.2: Different Prices of Inj. Ceftriaxone.

Drug Brand name Company Price per 1g*.

Inj.Ceftriaxone Cefaxone Lupin Rs.213.

Inj.Ceftriaxone Oframax Ranbaxy Rs. 99

Inj.Ceftriaxone Gutencef E-merck Rs. 50

All prices are as mentioned in the April-June 2002 edition of CIMS:

6

The authors are grateful to Dr Anurag Bhargav of JSS, Bilaspur for the data presented

in this section. See Chapter 2 for more on this trend of prices of drugs. See also

Document 4 at the end of this booklet.


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Table 5.3: A Comparison of the Leading Brands of Ciprofloxacin Listed in CIMS

Brand Strengthof tablet

Price*per 10

tablets

Company Price ofCifran

compared to

the drug

Cifran 500 mg 85.34 Ranbaxy

Ciplox 500 mg 78.90 Cipla +8 %

Ciproace 500 mg 63.00 Ranbaxy +35 %

Ciprolet 500 mg 49.50 Dr. Reddy's +72 %

Strox 500 mg 39.00 Dabur +118%

Zoxan 500 mg 29.00 Fdc +194%

Orpic 500 mg 26.81 Dey's +218 %

Source of prices: April-June 2002, CIMS

4.2 A study published by Roy and Rewari in the Indian Journal of Pharmacology

7that

surveyed the variation in prices of 84 formulations used in the management ofcardiovascular diseases in the Indian market concluded that variation in prices ranged

from 2.8 % to 3406 %. In the absence of comparative information on drug prices and

their quality it is difficult for physicians to prescribe the most economical treatment.

There is an urgent need to provide adequate information to physicians regarding cost,bioequivalence and quality of drugs.

5) Same Drug, Same Company, Different Price

Why does the same drug company price the same drug under different brand names atdifferent prices?

For example cefuroxime tablets are manufactured by GSK under the brand names ofCEFTUM and SUPACEF at widely different prices - Rs 80.91 and 63.01 respectively for

125 mg tablets and Rs 150.34 and 144.94 respectively for 250 mg tablets.

Similarly ciprofloxacin 250 mg Tablets are manufactured by LUPIN under the brandnames of CIPROVA and LUCIPRO 250 at the widely different rates of 41.79 and Rs

31.62 respectively.

Another example is of gentamycin Injection by PCI. It sells them as G-Mycin and

Gentasporin at Rs 6.80 and 7.68 respectively.

7

V.Roy, S. Rewari (1998). Ambiguous Drug Pricing: A Physicians Dilemma.Indian

Journal of Pharmacology, 30: 404-407.


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For a marketing person, it is very clear and logical to position one consumer item

maybe a shampoo or toilet soap -- for the richer consumer and one for the less affluent.

But try telling that to your average, busy, prescriber who does not have time tounderstand marketing techniques or try telling that to the poor patient. The ordinary

person always believes as his/her doctor that the costlier version of the same drug is

somehow therapeutically more effective. And if he/she cannot afford the costlier version,it is ones bad luck to have an inferior treatment.

6) Price Control is the Norm Even in the Developed World

Price Control is the norm all over the world except the USA which unfortunately India

is trying to emulate8. Even in the USA drug companies and health insurance companies

always negotiate prices. But the system excludes large numbers of the poor and

especially makes medicines costly for the elderly9.

One in three non-elderly Americans -- 74.7 million Americans -- were without healthcoverage for all or part of 2001-200210

.

6.1 PPRS in UK

The UK has its Pharmaceutical Price Regulation Scheme11

. The U.K. Pharmaceutical

Price Regulation Scheme (PPRS) regulates profits to a band of 1721 percent onhistorical capital, with 25 percent variation on either side. Companies are free to set

prices, provided their rate of return is within these bands. If profits are higher, the

company has to reimburse the National Health Service (NHS) or reduce profits the nextyear. If profits are lower, the company can raise its prices.

6.2 EU Countries

All EU countries, other than UK which has the PBS, have a form of priceregulation. In setting prices, these countries use therapeutic comparatorsand the price of products in other EU markets. Denmark, Greece, Finland,Ireland, Italy, the Netherlands, Portugal, and Sweden set a maximum price inrelation to prices in neighboring countries. In Belgium, France, and Italy prices

8

See Documents 1 and 2 at the end of this booklet for a review of a visit by the DPCRC

to several countries to study their drug pricing systems.9See Prices Of Most Popular Drugs For Seniors Rose Nearly Three-And-One-Half

Times The Rate Of Inflation Last Year-- Prices Of 27 Of The Top 50 Drugs Sold To

Seniors Rose More Than Three Times The Rate Of Inflation at

http://www.familiesusa.org/site/PageServer?pagename=Media_Out_of_Bounds, July 9,2003)

10

See http://www.familiesusa.org/site/DocServer/Going_without_report.pdf?docID=27311

See http://www.doh.gov.uk/pprs/index.htm


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are set in relation to relative cost, prices elsewhere in the EU, and thecontribution made to the national economy. In some countries (such asAustria, France, and Spain) there are volume-cost and other rebateschemes. Spain and the United Kingdom set their prices to ensure a rateof return within a particular profit range.

Elsewhere, and specifically, Canada has had its Patented Medicines Prices Review

Board, France has its Transparency Commission and Economic Committee on

Medicines, Egypt has all drugs under price control, Italy has restricted wholesale

margins, Germany has its reference pricing system, and some system of price monitoringand price regulation prevails in Japan, Netherlands, China, Indonesia, Colombia and so

on. In some of these countries drug pricing is tied with national health system

reimbursements and or insurance schemes. In the absence of either in India, the havoc onthe majority of the population can well be imagined.

12

12

Information can be obtained from the following websites about medicine pricing

policies in different countries.

Medicine Policy in Netherlands

http://www.netherlands-embassy.org/article.asp?articleref=AR00000251EN

Pharmaceutical Benefits Pricing Authority (Australia)

http://www.health.gov.au/pbs/general/pricing/pbparpt.htm

Patent Medicine review Board sets the medicine prices in Canada.http://www.pmprb-cepmb.gc.ca/english/home.asp?x=1

European Commission website has information about pricing policies of a numberof countries including France, Germany, Sweden, United Kingdom. Following is

the website.

http://pharmacos.eudra.org/

The Netherlands Pharmaceutical Pricing and Reimbursement Policies

http://pharmacos.eudra.org/F3/g10/docs/tse/Netherlands.pdf

Australia

http://pharmacos.eudra.org/F3/g10/docs/tse/Australia.pdf

New Zealand Pharmaceutical Pricing and Reimbursement Policies

http://pharmacos.eudra.org/F3/g10/docs/tse/NewZealand.pdf

Finland Pharmaceutical Pricing and Reimbursement Policies

Sweden

http://pharmacos.eudra.org/F3/g10/docs/tse/Sweden.pdf


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The above facts have been noted, or ought to have been noted, by the appropriate policy

making authorities in the Government of India. As a preparation to the PharmaceuticalPolicy 2002, the Government of India had appointed the Drug Price Control Review

Committee (DPCRC). The members of the committee visited various countries like the

US, Mexico, Canada, France and Egypt. They also reviewed price mechanisms of Italy,Germany, Japan, the UK, Spain, the Netherlands, Switzerland, Indonesia, Colombia

among others. What they found was contrary to popular expectations. There is no freemarket pricing in drugs even in the so-called free market economy countries.

The Committee report

13observes at one point, Marketing approval for every drug

whether imported or indigenously manufactured and registering them with the

appropriate government authority has been accepted as a fundamental requirement forevery pharmaceutical product. Countries have adopted the system of reimbursement

pricing, reference pricing, patented product pricing, etc, in order to put a moratorium on

the prices of pharmaceutical products that can be charged. In some countries, a cap has

been put on the margins allowed to the wholesalers and pharmacists...In others,registration of prices is insisted at the time of seeking marketing approval. Further, there

are various systems of ensuring reasonable health cover either by the public funded

programmes or through the private companies in the health and insurance sectors.

Let us quote further from the summary recommendations of the said committee:

... 2 The Committee noted that in most other countries, the regulation of thedrug prices is considered necessary to contain public expenditure due to

governments role in funding social health and insurance schemes that cover

hospital and out-patient drugs. The price regulations are used as aninstrument to keep their health budgets within reasonable limits. In these

countries, a substantial proportion of the population is covered throughhealth insurance and public health schemes. As a result, the consumers arenot affected directly by the high prices of drugs or high costs of medical

services, but are made to pay for the increased prices/cost through high

insurance premium. As opposed to this, a substantial proportion of thepopulation in India is market dependent and have to meet all their expenses

out of their own pocket on this account, making price regulation of

pharmaceutical products in the market unavoidable.

3 In India, in view of a large segment of the population being poor, the reachof the health coverage being inadequate, non-availability of appropriate

medical insurance coverage, price inelastic demand, market imperfections

and inadequate consumer awareness, the Committee considers it necessary to

continue formal regulation of the prices of pharmaceutical products andmedicines for some more time till public expenditure on health care for those

WHO website on

http://www.who.int/medicines/organization/par/ipc/drugpriceinfo.shtml13

See Document 1 for the relevant detailed extracts from the DPCRC Report.


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who cannot afford is increased and an alternative system is developed for

others. However, it is pertinent to point out that the pharmaceutical industryis perhaps the only knowledge-based and highly technology-oriented

manufacturing industry in the country which is under a formal price control

regime. This is mainly because the financial provisions in the budgets of

central and the state governments are too inadequate to cater to the needs ofthe ailing people. The Committee expresses serious concern on this aspect and

feels that the budgetary provision should progressively be raised. Further,there is an urgent need to expand public health care, supply of essential drugs

and the health insurance cover, both by the governmental and the non-

governmental organisations, as prevailing in the developed countries. Such an

alternative arrangement should be made fully operative within a period ofnext five years.

4 The present system of product-based price control has been in existence inthis country since long with progressive decontrol in terms of the number of

drugs as well as their share in the total pharma market. For the reasons

stated above, the Committee is of the view that this system should continue,for the time being, but with simplified methodologies and procedures to take

cognisance of the changed circumstances of liberalisation ushered into theIndian economy. For the purpose of determining span of control and pricing

of the drugs identified for price control, the Committee recommends.

The approach to price control based on selectivity be continued and applied

across-the-board to all the drugs used in the country irrespective of theirtherapeutic use. The guiding factors to identify specific drugs should be (a) mass

consumption nature of the drug and (b) absence of adequate competition in such

drugs. This approach will also ensure that the important drugs needed for

National Health Programmes, where adequate competition does not exist, arecovered for the purposes of price control. (emphasis ours)

It is clear that the Committee recommendations do not talk of wanting the price control to

be wished away. It is also clear therefore that there ought to be no dismantling the NPPAand the useful work it does against odds. So why does the Government of India talk of

reducing drugs under price control?

6.3 Cost-effectiveness controls: controls on new drug introduction

There has been a clamoring among Indian pharma industry that new drugs should nothave any price controls. Especially drugs that are a result of Indian R & D are supposed

to be exempt for 15 years. This blanket exemption while understandable from the point

of view encouraging Indian R & D needs to be tempered with effects on poor end users.Similarly is the case of drugs that are imported. There needs to be a price control the

PP 2002 recommends a ceiling of 50 percent more than the landed price. What about

transfer pricing? How do you ensure that it has not already been excessively billed? Inany case how do we evaluate whether the new drug imported or a product of Indian R


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and D, is really therapeutically necessary. For new drugs, the practice in EU and

Australia includes the following:

Throughout the EU and elsewhere, there is increasing interest incomplementing pharmaceutical licensing procedures with -- (that) -- of

demonstrable cost-effectiveness. Although European economists haveadvocated such controls for several decades, Australia pioneered theapproach nationally within its Pharmacy Benefits Scheme (PBS). Since1999 the National Institute of Clinical Excellence (NICE) has issuedguidance to the NHS in England. Both the PBS and NICE requirecompanies to submit evidence of the costs and effects of new products.Recommendations are generally for specific subgroups of patients and areguided by cost-effectiveness and cost-utility analysis. Economic data arenow used to inform reimbursement and pricing decisions in a number ofEU states. Finland, Portugal, the Netherlands, France, Spain, and Swedenare all developing the use of such data in their regulatory systems.14

7) Misleading Drug Promotion: Cause of Drug Over Pricing

Probably among the important reasons why drugs are over priced are misleading drugpromotions. The margins discussed above are used to give gifts, sponsor seminars, etc. to

the medical profession. Many US faculty members on institutional review boards have

ties with industry says a recent report in the British Medical Journal [BMJ 2003;327:414(23 August)]. This clearly influences research outcomes atleast in some cases. In India

drug companies are known to give Maruti cars15

. Sponsoring for holidays and medical

seminars are now considered passe. Only the Indian Academy of Paediatrics amongprofessional bodies has taken a principled stand on this matter by banning drug company

sponsored conferences of its meetings.

Six good reasons to be concerned about drug promotion16

Drug companies spend on average around 35% of sales on promotion.[1]

Companies would not spend such massive amounts on promotion if it were noteffective at influencing prescribing.

14

Source: Alan Maynard and Karen Bloor Dilemmas in Regulation of the Market forPharmaceuticals. Health Affairs ~ Volume 22, No.3, May-June 200315

For other such instances, see Chapter 3 in this booklet as also Marketing of medicines

in India: Informing, inducing or influencing? by Dr. Chandra Gulhati, BMJ2004;328:778-779 (3 April). See also: Surviving the Pharmaceutical Jungle by Nobhojit Roy

and Neha Madhiwalla, a new study on the unethical promotional practices of pharma

companies in India. See the Jan-Mar 2004 ofIssues in Medical Ethics. For the study seewww.issuesinmedicalethics.org/docs/Pharmrpt.pdf

16

Source: http://www.healthyskepticism.org/problem.htm

The references for the statements following are given in the text itself.


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Promotion influences prescribing much more than most health professionalsrealise.[2-5]

Many advertisements and statements from pharmaceutical representatives aremisleading.[6,7]

Promotion which exaggerates benefits and glosses over risks, threatens optimal

treatment.Reliance on promotional information may endanger lives and expose prescribers

to the risk of litigation.[8]

1.Devlin J, Hemsley P. Management views on industry issues, pressures andconsultants. Scrip Magazine. 1997 June 16-183.

2.Caudill TS, Johnson MS, Rich EC, McKinney P. Physicians, pharmaceutical sales

representatives and the cost of prescribing. Arch Fam Med 1996; 5:201-6

3.Orlowski JP, Wateska L. The effects of pharmaceutical firm enticements onphysician prescribing patterns: Theres no such thing as a free lunch. Chest

1992;102:270-73

4.Waud DR. Pharmaceutical promotions. New Engl J Med 1992;327:23:16885.Chren M-M, Landefeld CS. Physicians' behaviour and their interactions with

drug companies: A controlled study of physicians who requested additions to a

hospital drug formulary. JAMA 1994;271:9:684-96.Wilkes MS, Doblin BH, Shapiro MF. Pharmaceutical advertisements in leading

medical journals: Experts assessments. Ann Int Med 1992;116:912-9197.Roughead EE. The pharmaceutical representative and medical practitioner

encounter: implications for quality use of medicines. Masters Thesis. School ofHealth Systems Sciences. La Trobe University. Aug 1995

8.Aders HP. Legal liability and drug prescribing. Cur Therap 1991;32:6:17-21

There are other undesirable practices which apart from harmful effects to the patientactually affects pricing the consumer pays for it (see for a more detailed discussionALay Persons Guide to Medicine: What is Behind Them and How to Use them, LOCOST,

Baroda, Dec 2000) The most reputed pharma companies of India MNCs as well asnational ones -- have been indicted at one time or the other. Recently the British Medical

Journal [BMJ2003;326:620 (22 March)] reported Whistleblower charges drug

company with deceptive practices and gave the following details:

A former drug company insider has spoken to reporters for the first time

since he filed a whistleblower lawsuit in 1996 ina US federal

court. ...The

suit charges that Parke-Davis engaged in elaborate inducement schemes topersuade doctors to promote the off-label useof one of its best selling

drugs, gabapentin (Neurontin), an anti-epileptic

drug approved as

adjunctive treatment for partial seizures. Italso says the company ran

ghost writing schemes, in which it paidspecialists to "author" articles that

were actually written bytechnical writers hired by the

company.


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Prescribing drugs off label accounts for over 78% of sales of gabapentin,

according to Parke-Davis. Although off-label prescribingis legal, the US

Food and Drug Administration prohibits drug companiesfrom promoting

such use to doctors. Parke-Davis, which was a divisionof Warner-Lambert

when the promotional activities are allegedto have occurred, was acquired

by Pfizer in

2000.

8) Problems with the Pharmaceutical Policy 2002, its Price Control Methodology

and the ORG-MARG Retail Audit

8.1 Price Control Criteria of PP 2002

The Pharmaceutical Policy (PP) 2002 has this to say on the pricing methodology to be

adopted:

The Department through NPPA, with the help of NIPER has developed the

desired database for single ingredient formulations from the retail store auditdata as published by ORG-MARG. On this basis, the Department proposes to

undertake the exercise of identifying the bulk drugs of mass consumption

nature and having absence of sufficient competition according to thefollowing methodology:

i. The 279 items appearing in the alphabetical list of Essential Drugs inthe National Essential Drug List (1996) of the Ministry of Health and

Family Welfare and the 173 items, which are considered important by

that Ministry from the point of view of their use in various HealthProgrammes, in emergency care etc., with the exclusion., as in the

past, therefrom of sera & vaccines, blood products, combinations etc.should form the total basket out of which selection of bulk drugs bemade for price regulation.

ii. The ORG-MARG data of March 2001 would form the basis fordetermining the span of price control as suggested by DPCRC.

iii. The Moving Annual Total (MAT) value for any formulator in respectof any bulk drug will be arrived at by adding the MAT values of all his

single-ingredient formulations of that bulk drug, its salts, esters,stereo-isomers and derivatives, covering all the strengths, dosage

forms and pack sizes listed against that formulator in all groups /

categories of the ORG-MARG (March 2001).

iv. The MAT value for all the formulators, as defined in sub-para (iii)above, in respect of a particular bulk drug will be added to arrive at thetotal MAT value in the retail trade.

v. The MAT value for an individual formulator, in respect of any bulkdrug, as arrived at in sub-para (iii) above, will be the basis for


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calculating the percentage share of that formulator in the total MAT

value arrived at as in sub-para (iv) above, in respect of that bulk drug.

vi. Bulk Drugs will be kept under price regulation if:-

(a) The total MAT value, arrived at as in sub-para (iv) above, in

respect of any particular bulk drug is more than Rs.2500 lakhs (Rs.25Crore) and the percentage share, as defined in sub-para (v) above, of

any of the formulators is 50% or more.

(b) The total MAT value, arrived at as in sub-para (iv) above, inrespect of any particular bulk drug is less than Rs.2500 lakhs (Rs.25Crore) but more than Rs.1000 lakhs (Rs.10 Crore) and the percentage

share, as defined in sub-para (v) above, of any of the formulators is

90% or more.

All formulations containing a bulk drug as identified above, either

individually or in combination with other bulk drugs, including those not

identified for price control as bulk drug, will be under price control. The

Government shall, however, retain the following over-riding power:

In cases of drugs/formulations listed by the Ministry of Health and

Family Welfare, mentioned in sub-para (i) above, and those presently

under price control, having significant MAT value as per ORG-MARG

but not covered under the criteria in sub-para (vi) above, as a result of thisproposal, the NPPA would specially monitor intensively their price

movement and consumption pattern. If any unusual movement of prices is

observed or brought to the notice of the NPPA, the Authority would workout the price in accordance with the relevant provisions of the price

control order.

8.2 Inappropriateness of Policy Based on Single Ingredient Formulations

The first point to be noted in the above criteria of PP 2002 is that it relies as the basis on

the so-called retail store audit data, of ORG-MARG (now ORG-AC Nielsen, henceforthin this paper referred to as ORG), of single ingredient formulations only. This does not

reflect reality at all as most (atleast 50 percent conservatively) of the market consists of

combination or multi-ingredient formulations. Thus the very basis of the data is faulty.

Adding data of combination formulations as per PP 2002 will

increase the possibility of the MAT of a drug going over Rs 25 crores

or over Rs 10 crores.

increase the possibility of the market share of a formulator going over50 percent.

The said drug may have escaped price control otherwise. On the other hand it could

diffuse the market shares, say as in the antibiotic formulations category, and a company

may have unfairly - unfair in terms of criteria enumerated by PP 2002 been earlierunder price control.


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The March 2001 ORG MAT figures of cloxacillin single ingredient drug is Rs 1.97

crores (about Rs 1.4 crores as per ORG Oct 2003) in which Lyka Labs has a share of 95percent. Whereas cloxacillin is mostly sold in the market in combination along with

Ampicillin (as in the brand name Ampiclox). The sale of Ampiclox combinations as per

ORG Oct 2003 figures is Rs 147 crores. Current bulk drug prices would give a 50 percentvalue contribution of ampicillin to the ampiclox combination. Therefore the total sale of

cloxacillin component would be atleast Rs 73.5 crores as compared to the sales figure of

Rs 1.4 crores of the single ingredient. How accurate then is the PP 2002 price criteria?

That this combination is irrational and unscientific is another issue which the PP 2002 isnot concerned with at all. Cloxacillin is currently under price control but would escape

price control as per the criteria of PP 2002. Ampicllin is not under price control now and

would also escape price control if PP 2002 were in force.

We have other instances of drug combinations (see Table 6) with considerable market

dominance that would escape price control because of the PP 2002 criteria because one

the constituents are individually out of price control. This when any industry observerknows that if a brand has a sales turnover of Rs 1 crore and more, it has arrived. We

give examples.

Table 6: Sale of Single Ingredient Formulations vs. Combinations)

Name of the DrugValue of Single Ingredient

Formulations aloneValue of Combinations

alone

Cloxacillin 1.41 197.72

Norfloxacin 53.29 107.10

Metronidazole 27.28 99.09

Ciprofloxacin 284.28 94.79

Enalapril 79.64 22.04

Atenolol 123.63 176.40

Metformin 59.56 163.17(All figures in rupees crores and as per ORG Oct 2003 retail audit)

The largest antibiotic molecule in terms of turnover (Oct 2003 ORG figures) isciprofloxacin with a turnover of Rs.284 crores. There are 126 brands in the ciprofloxacin

category, this would mean, one brand for every two companies that ORG audits. Only

three brands, Cifran, Ciplox and Ciprobid have more than 50% of the share of thismarket and the rest 123 brands cover the remaining market.

The price of these brands of 250 mg capsules varies from Rs 14 to Rs 44 bringing usagain to the point that looking at the vast differences in ciprofloxacin brand pricing, the

leader is anyway milking the market. Should not these be under price control but

escape they will from price control as per PP 2002 criteria?

Another gross example is that of roxithromycin. The size of the market is Rs.97 crores

(ORG Oct 2003 data) and there are 100 brands in the category. Only one brand Roxid has


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a market share of 49%. Remaining 99 sharing the rest of the market. Will also escape

price control as per PP 2002 criteria.

8.3Mass Consumption and Price Control

A high turnover of a commonly used drug like say paracetamol (brand name: Crocin,etc.) or an antibiotic like amoxycillin, or a very useful antibacterial like co-trimoxazole

(brand name Septran, Bactrim, etc.) would sooner or later go out of the price control.

Even on price controlled drugs generic manufacturers are giving today unprecedented

margins. What will happen when a drug like paracetamol or aspirin (aspirin 75 mg isrecommended as a preventive for heart attack) can well be imagined. The criteria of PP

2002 looks as if that a drug however essential, because of its mass consumption nature,

will go out of price control can well be imagined leaving the market to bring down theprices. We have seen the market is a poor regulator in the matter of medicines. Precisely

because a drug is useful, and essential, its price needs to be under control. But here it

appears that precisely because a drug is useful -- it will be mass consumed, be available

at different prices in different brands and may have a MAT of over Rs 25 crores and noformulator having more than 50 percent share its probability of going out of price

control increases.

8.4 We give other counter-examples.

a)MAT Value Rs 10-25 crores

A drug has Rs 10-25 crore MAT value but a formulator of the drug having even more

than 50 % market share will escape price control. One can price it arbitrarily.

The irrational drug analgin, banned in several countries, has a MAT of Rs 23.95 crores

and the leading brand Novalgin of Hoechst MR has a share of 57 percent.

Likewise, Hoechst has an 85.16 % market share of the peripheral vasodilator

pentaxyfyline (MAT value as per ORG Mar 2001 Rs 12.80 crores). Not under pricecontrol as per PP 2002 criteria.

The case of Vitamin C is discussed independently below.

b)MAT Value Less than Rs 10 crores

In the situation under Rs 10 crores MAT value of a drug, one can be the only producerand still escape price control. However essential or life saving the drug maybe.

Take for example, the life-saving diuretic and antihypertensive (anti high BP),

frusemide. Total MAT value of the drug (ORG March 2001) is Rs 9.48 crores and theleading brand Lasix of Aventis has a market share of over 97 percent. Just escapes price

control and surely would have crossed the Rs 10 crores barrier since March 2001. This

when the more useful and scientific diuretic, hydrochlorthiazide, is practically not


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available in the market. Other examples in this category (under Rs 10 crores MAT and

escaping price control inspite of practical monopoly) are levadopa used for

antiparkinsonism, Ranbaxy has a share of 86 percent (ORG March 2001), Vitamin A,MAT Rs 8.56 crores and leading market shareholder USV has 80 percent share. Vitamin

A incidentally has a monopoly bulk supplier (Roche) and is useful against night

blindness. Cefazolin, antibiotic, priced at a range of prices (MAT Rs 4.22 crores, leadingproducer of formulation (injections mostly) has 96 percent share.

c)MAT Value Greater than Rs 25 Crores

Also when turnover is greater than Rs 25 crores, one can have 0 to 49 % market share; or

three or more producers can each have less than 50 percent and they can escape price

control.

We give the example of ranitidine, a leading antiulcer, antacid, to illustrate the point.

Ranitidine has a MAT value of Rs 148.04 crores (ORG March 2001 figures) and Glaxo

SKB and Cadilla Pharma together have a market share of 63.5 percent. It is a moot pointthat the drug price will not be cartelised but the price of the branded ranitidine 150 mg

tabs varies between Rs 5 to Rs 12 per 10 tabs (CIMS July 2003) whereas the ex-factory

price ought to be Rs 3.00 per 10 tabs (LOCOST, July 2003). Incidentally, there is anoligopoly of producers for the bulk drug ranitidine. Ranitidine is currently under price

control and will go out of price control as per PP 2002 criteria.

The anti-diabetic Insulin has MAT of Rs 161.77 crores and three of the top brands has a

market share of over 80 percent. It will go out of price control as per PP 2002. Insulins

are highly priced. Ask any person with diabetes.

d) Decontrolled Essential Drugs, High Price, High Variation Many crucial, essential drugs say for cancer, may or may not fall in the price control

criteria but they show a wide range in pricing and are very costly if bought from

particular companies. For example: Khandelwal sells tamoxifen 10 mg, used by breast

cancer patients, for Rs 29.21 for 10 tablets. It is also sold by ICI at Rs 951 for pack of 50tablets (that is Rs 95 or 10 tablets). And Nicholas sells 50 tablets for Rs 1388 (that is Rs

277.60 for 10 tablets). So if you are a traumatised patient with mastectomy performed on

you and trying to recover, you will be racked with doubt which brand to take andprobably settle in for the costlier version. Some doctors will recommend costlier versions

because they too believe a costlier tablet of the same drug would have better quality and

efficacy. Similar is the case of flucanozole 150 mg (antifungal also useful in Anti AIDStreatments): the prices vary from Rs 3.50 to Rs 30 per tablet. (All prices as perMIMS

July 2003 and Drug Today July-September 2003).

e) No Rationale between Price and Drug Presentation

A drug may be out of price control - or in a particular formulation may be under control.

But there is seldom any rational in pricing between its tablet presentation and its


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presentation as an infusion. For instance ofloxacin, a currently popular antibiotic, costs

Rs 3 to Rs 4 per tablet of 200 mg but its infusion may cost anywhere between Rs 30/- to

Rs 60/-. Price controls normally focus on the more popular versions. But infusionsinasmuch as they are misused, are useful in critical conditions. So if one is critical, he/she

has to needlessly pay more if an infusion is needed. Many drugs out of price control with

several players in the market but critical otherwise have a range of pricing as alreadypointed out.

The situation with respect to new drugs third generation and fourth generation

antibiotics/cephalosporins is alarming. The prices are very high even for single units.

As for vital and life-saving drugs which have escaped price control because of other

previous criteria (say that of Drug Policy 1995), as we have already shown above thatthere is an unreasonable variation in price of branded formulations based on the same

bulk drug from 200 to over 2000 percent. And more.

f) What of Drugs not in the Price Control Basket?

The PP 2002 says that the basket of 279 drugs (see para 8.1 above) will be the pool fromwhich the MAT criteria would be applied to decide which drugs would be on price

control or would be out of it. But as an accompanying chapter in this book shows 70

percent of the top-selling 300 drugs are irrational how about price control on these?And do we not need to consider the deleterious effects of overpricing on the many of the

20,000 formulations which fall out of price control, made usually by small scale

companies (which are out of the ambit of price control)? Not to mention the burgeoningmarket of overpriced ayurvedic/herbal formulations and the so-called nutraceuticals

which are overpriced and mostly inappropriately prescribed by doctors as diet

supplements for the sick, convalescing and the healthy.

8.4 Inappropriateness of Bulk Drug Price Control Criteria

The PP 2002 criteria are also faulty on the following grounds: MAT sales criteria are

based on formulations based on ORG figures. Even if one accepts the soundness of theSufficient competition criteria described in the PP Policy 2002 (quoted in Para 3 of

Section 8.1 above), MAT sales figures of formulations decides which bulk drug will be

in price control. Or out of it. A bulk drug may go out of price control, but it has nothingto do with whether there is competition among mfrs of the bulk drug in question. Thus a

bulk drug may go out of price control even if it had one or 2 mfrs for it in the country.

The Policy thus would lead to encouraging and legitimizing monopoly and oligopoly

situations in the bulk drug segment of the Pharmaceutical market.

As an example, take the case of Vitamin C. According to ORG March 2001 figures it hasa MAT of Rs 21 crores and GSKB (Glaxo) and Sarabhai Piramal have a total market

share of 54 percent in Vitamin C formulations. Vitamin C formulations would would

escape price control according to the criteria of PP 2002 and so would the bulk drug.


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Vitamin C bulk drug has only two (at most three) producers in the country, with

Sarabhai having a predominant share. One should add however that Vitamin C bulk drug

has been independently under price control because it meets the criteria of price controlof the earlier policy (see below). And the two lone Indian producers had complained to

the government of dumping by foreign traders/ companies.

Contrast this to the concern shown in avoiding monopoly situations in bulk drug pricingin the Modifications in Drug Policy, Para 22.7, of which states inter alia:

The criterion of including drugs under price control will be the minimum annual

turnover of Rs.400 lakhs. Drugs of popular use, in which there is a monopolysituation will be kept under price control. For this purpose if for any bulk drug,

having an annual turnover of Rs. 100 lakhs or more there is a single formulator

having 90% or more market share in the Retail Trade (as per ORG) a monopolysituation would be considered as existing.

Drugs in which there is sufficient market competition viz. at least 5 bulk drug

producers and at least 10 formulators and none having more than the 40% marketshare in the Retail Trade (as per ORG) may be kept outside the price control.However, a strict watch would be kept on the movement of prices as it is expected

that their prices would forces of market competition. The Government may

determine the ceiling levels beyond, which would not be permissible. (emphasis

ours)

8.5 Irrelevance of Essentiality of Drugs for Price Control

The criteria of PP 2002 have little to do with essentiality and vitality of drugs. Noconvergence with health policy, disease profile, health situation of the country,

availability of health care and pricing of drugs. For example, none of the HIV/AIDSdrugs, which are high-priced, will come under price control as per the criteria.

No importance is given to the therapeutic importance of the drug, its importance in the

national programmes, its importance in dealing with critical ailments and theircomplications arising out of the field level realities. Pure economics and trade figures are

a blind way to identify drugs for price control. For instance TB, a national killer, often

routinely leads to complications because of non-compliance of treatment regimes by

patients, either because of non-availability of drugs when needed or non-affordability, orremote location of the TB patient, etc. and thereby developing resistance to first line

drugs. In such cases second line or third line drugs for TB have to be resorted to. Second

line TB drugs are not under price control. Why are second line drugs not sold enough tofall under the PP 2002 criteria of price control? Because as yet most doctors persist with

first line drugs and possibly the patient is dead by the time somebody in the health system

notices him/her to give second line drugs.

8.6 Is there an Appropriate Price Control Criterion?


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We however need to stress that despite our critique of the criteria of PP 2002, similar

remarks would be due for the criteria under the earlier 1995 policy Modifications in

Drug Policy a part of which is quoted in para 8.4 above. Purely turnover-based criteriawould always tend to miss out the wood for the trees: that is, would decontrol many

essential drugs and have not so critical drugs under price control. Only criteria that

integrate the vision of affordability in the context of health seeking behaviour of ourpeople would make reasonable sense. One way is to have always have essentials under

control and go by turnover criteria for inessentials, short of weeding out inessentials

totally. Another option is to give essentials reasonable margin of profit and give non-

essentials say 50 percent post-manufacturing markup.

However the least messy, scientifically most rational and administratively elegant way of

price criteria for formulations is to do what the Bangladesh Drug Policy has donesuccessfully since 1982: only a limited list of essential drugs are to be manufactured in

the country, and the MRP for tablet formulations is kept at 100 percent more than the cost

of the raw material content in the tablet and for capsules 125 percent more than the cost

of the raw material content; and manufacture of liquid formulations (normally the onesthat are misprescribed in the form of vitamin and nutrient tonics) are to be strictly

restricted.

8.7 PP 2002 and Taxation/Duty Norms

The PP 2002 does not talk of giving fiscal incentives for drug production of let alone

essentials and generics but at least for those belonging to the National Disease

Programmes. The aggregate tax component on drugs (including excise duty and centralsales tax) is about 30 per cent at present. Today the government has no systematic policy

of collecting excise on essential, life saving drugs. Exemptions are given on strengths of

lobbies. All anti-AIDS drugs are now exempt from sales tax and excise duty. Rifampicin,a crucial drug against TB, is levied excise of 16 %, but there is no CST and no sales tax

in Gujarat but sales tax is levied in Assam. The anti malarial chloroquine has no excise

duty but has CST and Gujarat Sales Tax. Ethambutol, INH, pyrazinamide - all used

against TB and leprosy are exempt from CST and excise duty. ORS (oral rehydrationsalt) is levied excise. ORS is also curiously not in price control despite it being a vital aid

in the management of diarrhea and despite it being available at widely differential prices.

8.8 NPPA and Lack of Transparent Methodology

In cases where drugs that have escaped price control are still found to be highly

overpriced, the criteria, or for that matter the monitoring agency of the government,

National Pharmaceutical Pricing Authority (NPPA), has no transparent methodology to

identify/monitor drugs to be put under price control. Given the proliferation of brandedformulations, atleast 100,000 (one lakh) in number, it is difficult to see how prices of

drugs out of the price control can be monitored in an effective and efficient manner. In

fact it has not been able to do so and a result we have the formulations based on the same


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bulk drug sold at vastly different prices. The Drug Price Control Review Committee

(DPCRC) report has also pointed out this gross distortion and a problem (see Tables 5.4

and 5.5 of DPCRC report as well as section on Monitoring of Prices in Chapter 5 onPricing of Drugs, pp.61 62) of the same report. At another level, the NPPA relies on

ORG retail audit data which itself cannot be said to be in the public domain. They are

expensive and accessible only at a price to the public (the complete ORG retail auditreport for any year is priced at Rs 15 lakhs).

8.9 Observation of Govt. Committees: Price Control

Nowhere in the world are drugs free of price control as has been pointed out already. A

fact also mentioned in detail in the DPRC (Drug Price Review Committee, October 1999,

Chapter 3, pp 23 ff)) report as well as in Chapter VI of the 15th

Report (August 2001) ofthe Parliamentary Standing Committee on Petroleum and Chemicals (13

thLok Sabha) on

Pricing and Availability of Drugs and Pharmaceuticals. (Extracts reproduced as

Document 2 in the Documents section.)

8.10 Observation of Govt. Committees: Huge Trade Margins

The problem of huge margins to the trade (more than 1000 to 3000 percent) of drugs outof price control has not been addressed by the Pharmaceutical Policy of 2002. In fact it is

a failure of the principles on which drugs have been kept out of price control. This fact

has also been noted by the DPCRC [Chapter VI, Summary and Recommendations, 11(vii)]:

It has also been observed that some of the manufacturers tend to provideunduly high trade margins, adversely affecting the consumer interest.

Therefore, the committee is of the view that to discourage unethical

practices by the players, the difference between the first sale price of aformulation by the manufacturers and the retail price printed on the label

be limited to a maximum of 40 percent of the MRP in the case of

decontrolled formulations.

We have similar observations from the 15th

Report (August 2001)of the Parliamentary

Standing Committee on Petroleum and Chemicals (13th

Lok Sabha) on Pricing andAvailability of Drugs and Pharmaceuticals, Part II, Recommendations and Conclusions

of the Committee, para 26:

The committee find several lacunae the price control fixation system of NPPA.

NPPA fix the price of bulk drugs on the basis of data provided by the

manufacturers. Although the prices of some bulk drugs have moved down, this isnot reflected in the retail prices of non-scheduled formulations. Besides, concern

has been expressed on the high commission / margin offered to the trade, much

detriment of the consumers. The Committee desire that the different between the


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first sale price of a formulation by manufacturers and the retail price be limited to

a specific level say one third of the first sale price of the maximum retail price in

the case of decontrolled drugs. Price control system should encourage use of time-tested effective/safe drugs and to discourage the use of costly drugs which may

not be medically superior. Involvement of Drug Controllers at the time of clinical

tests may prove beneficial. (emphasis authors)

The remarks of the Committees are slightly inaccuarate. The margins are even more

see Table 7, Extent of Trade Margins: Some Examples,for instance. These are margins

only from the distributor to the retailer. The actual margins in the entire trade frommanufacturer to retailer are likely to be even higher.


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Table 7: Extent of Trade Margins - Some Examples17

(All prices in rupees)

Sr.

No.Brand Name Content (s) Manufacturer Use

Packing

Unit

Distri-butors

Price

(a) (B) (c ) (D) (e) (f) (g)

1. Ibu Gesic500 Ml

Ibuprofen 100mg per 5 ml

Cipla Ltd.

Pain,fever,

inlammati

on

500 ml 25.00

2. Mycobact

800

Ethambutol 800

mg tabs

Cipla Ltd.Anti-TB,

Leprosy

10 x

10

135.00

3. Tetrabact-250 TetracyclineCipla Ltd.

Anti-biotic

10 x10

44.00

4. Cofdex P Cough

expectorant

substances

Cipla Ltd.

Cough

Syrup

60 ml 8.50

5. Tricast

Orthopaedic

Polyster CastingTape

Casting Plaster

Samyang Corpn. Korea Mktd By

Cipla

Casting

Plaster

1 pc 240.00

6. Nicispas Nimesulide 100mg +

Dicyclomine 20mg

Cipla Ltd.

For Feverand Pain

10 x10

35.00

7. Pyzid-750 Pyrazinamide

750 mgCipla Ltd.

Anti TB 10 x

10

175.00

8. Pregtest Kit Pregnancy Test

KitCipla Ltd.

Pregnancy

Test Kit

1 kit 13.00

9. Coxkit-4 Combination ofAnti TB drugs

Cipla Ltd.Anti TB 15 x 2

x 1 kit276.00

10. Protibin Vitamins and

Nutrients Cipla Ltd.

Vitamins

andNutrients

200 ml 17.50

11. Gentacip- EyeDrops

GentamycinSulphate

Cipla Ltd.Eye drops 600 x

5 ml3.50

12. Cafepar Paracetamol 500

mg + CaffeineCipla Ltd.

For fever

and pain

10 x 5

x 10

105.00

17

See also Document 4, Table on Difference between wholesale price and MRP (%)


29/38

- 29 -

25 mg

13. Doxicip-100 Cap Doxycycline 100mg

Cipla Ltd.Antibiotic 20 x

10140.00

14. Fericip Tab

Chewable Tablets

Iron Polymaltose

with Folic Acid

Cipla Ltd.

Irrational

Iron

supplement for

anemia

10 x

10

170.00

15. Vasotop Nimodipine 30

mgCipla Ltd.

For High

BP

10 x

10

250.00

16. Megaclox-Lb Ampicillin 250mg + Cloxacillin

250 mgCipla Ltd.

Irrationalcombinati

on of

Antibiotics

10 x10

190.00

17. Nicip Md Nimesulide 100mg

Cipla Ltd. For fever 10 x 5x 10

100.00

18. Okaflox-400 Ofloxacin 400mg

Okasa Pharma.Ltd.

Antibiotic 10 x10

330.00

19. Suhagra-100 Sildenafil Citrate

100 mg

Okasa Pharma.

Ltd

Viagra

clone

10 x 4 480.00

20. Cheston-Cs

Meltees

Dextromethorph

an 10 mg +

CPMaleate 2mg

Okasa Pharma

Ltd

Irrational

anti

allergicdrug

10 x

10

35.00

21 Rofex 250 DT Cephalexin 250

mg Nicholas Piramal

Antibiotic 30 x

10

497.08

22. Ronimox 500 DT Amoxycillin

500 mgNicholas Piramal

Antibiotic 20 x

10

362.11

23 Perry-20 Omiprazole 20

mgIndo Labs

Anti ulcer 20 x

10

104.76

Source of Prices: Distributors Documents

8.11 Observation of Govt. Committees: ORG Retail Audit Methodology

ORG-MARG methodology has been faulted for its gross inaccuracies and for notreflecting the field level realities of the country. We quote below from the DPCRC

Report, Chapter 5:

The ORG-MARG study on Trends in price index of pharmaceutical

formulations (1995 1998) conducted in March, 1999 brings out that the

pharma market during the said period increased by 9.3% and the priceindex increased by 10.6%. It implies that there was a decline in the


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quantity produced during this period which is not factually correct. While

working out the index numbers for each year, the base year figures have

been substantially changed by ORG MARG for which no satisfactoryreasoning is given. Clearly, a statistical bias appears to have been

introduced to keep the index depressed. For instance (i) In Table 3.1.1 the

value in 1994 is worked out by taking the quantity of 1995 and prices of1994, resulting in to a lower value. And to workout the change in the

price index, the value in each of the base year has been jacked up. Same is

true of other tables/exercises given in the Report. Appropriately, a

common base figure (1994) should have been taken to arrive at a realisticassessment of the increase in prices in 1998.

Moreover, the prices given in the ORG report are the price at which drugsare sold to the wholesale chemist. The retail prices for the consumer are

those which are printed on the pack and which normally ar4 changed by

the chemist after adding the local taxes etc. Therefore, the tendency of

many of the manufactures to retain the price for the wholesaler static whileincreasing the consumer price will not reflect the real increase through the

ORG study. In view of these weaknesses, the committee does (not)

consider their assessment as reliable.

Likewise we have comments of the Ministry of Health (as in its comments to the DPRC)

on ORGs methodology:

The Ministry of Health strongly feels that ORG-MARG data neithergives the real picture of the market not is it available for more than a third

of the drugs falling under the essential drug list as many of such drugs are

primarily used directly in the hospital based health care Cheap drugsneeds to be available not only at the retail level but in the hospital care

system too. Therefore, it is essential to have a database, especially in

respect of all the essential drugs, to get the complete picture of theirproduction and sale in the country. Only then would it be possible to take

a more rational decision on price control. Ministry of Health supports the

proposal to collect the information form the Department of Revenue in

order to get the real market data about the production and sale of thesedrugs. This may be collected in the next one year and the list of drugs kept

under price control be revised at that time. Meanwhile, the immediate

exercise which will be carried out may be done on basis of data of ORGavailable as of March, 2001 rather than that of 1999.

8.12 Inappropriateness of ORG Retail Audit for Public Health Policy

ORG-MARG takes about 1 percent sample of the sales of the retail outlets whereas the

total number of outlets is about 2.5 lacs and extrapolates sales figures therefrom.

Extrapolated from a highly differentiated market where the same drug of the same


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company sells at different prices in the same state, it is an extrapolation from 280

companies (roughly about 70 percent of the retail market) of a maximum of Rs 19,000

crores (ORG Retail Audit, Oct 2003, top 300 brands) of annual retail sales. The figuresthemselves are not, as pointed above, retailfigures: they are price to the retailer. The

ORG retail audit is designed to capture the purchases made by the chemists from

wholesalers. Therefore they are wholesale figures of a kind and do not reflect reality ofend point sales.18

The term Retail Audit is definitely misleading and a misnomer,

except to say that they are a crude barometer. It also does not reflect figures of bulk

institutional sales which industry estimates to be to another 30 percent, if not 50 percent

of retail sales (just add defence, ESI and the drug budgets of State Governments, publicsector bodies, sales to NGOs, hospitals, etc. the predominant bulk purchasers.). It does

not take into account export figures, which probably is all right considering exports do

not have a direct impact on retail prices. Neither does it take into account the black-market drugs billed that is. After all, the data collected by the Retail Audit surveyors

reflects the bills of what the wholesaler decides to show. There is a considerable slice of

the market, atleast about 20-30 percent, that comes under the various schemes of drug

companies. You then also have to put in another 25 percent for spurious drugs. Spuriousdrugs coming in two varieties: the real drug as per label but printed and packed by some

other company so-called counterfeit drugs; the other is the case of drugs which are

subtherapeutic and/or do not have the contents mentioned at all. It is also a moot pointhow many of the 280 companies surveyed by ORG are themselves originators of spurious

drugs.

As against the frequently quoted figure of about 20,000 manufacturing units, the actual

number of drug manufacturing licenses issued as of December2003 was - bulk drugs

(1333), formulations (4534), large volume parenterals, (134) and vaccines (56). The totalnumber of manufacturing units engaged in the production of bulk drugs and formulations

is not more than 5877.19

According to the Director, National Pharmaceutical Pricing

Authority of the Government of India (NPPA), the number of APIs (ActivePharmaceutical Ingredients) used is 550, APIs manufactured is 400, and formulations

marketed are 20,000 under 8000 brand names.20

The NPPA monitors about 20,000

formulations.21

. Although NPPA monitors only 8000 brands in 20,000 packs, the actual

18This can result in a heavily competitive environment like the segments related to

antibiotic, hypertensives, etc, with the company playing with differential retailmargins.19

Besides there are 199 medical devices units, 638 surgical dressings and 272

disinfectant units, 4645 loan licences and 318 repacking units, 1806 blood banks, 2228cosmetics units and 287other units not covered in the above categories. [Source:

Mashelkar Committee Report (2003). Figures arrived at after soliciting information from

each FDA or equivalent of all states of India.]20

Dr Appaji, Director, NPPA, at a WHO-SEARO workshop on Medicines in SEA

Region, Chennai, Dec 22, 2003.21

According to NPPAs figures, 56 percent of these formulations available are based on a

single ingredient bulk drug, 20 percent on 2 bulk drugs, 8 percent on 3 bulk drugs, 4


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number of brands in the market would be higher. Even if we assume that on an average

each of the 4534 formulators produce only 5 brands, the total number of brands would be

about 20,000. Many of the big companies have over 50 brands at a time.

Accepting the above figure that there are only about 4500 formulation units, ORG audit

covers only 280 companies. This would mean a significant number of regional companies

are not covered. So a market size of Rs 19,000 crores is grossly underestimated. Thegovernment may carry out an exercise of comparing the ORG company turnovers with

the inland sales or retail sales as described by companies in their profit and loss

statements. This will bring out the gap between the actual turnover and ORG estimates.

Thus in a country of 2.5 lacs retail pharmacists (4 lacs according to the Mashelkar

Committee Report on Spurious Drugs), to go by the retail store data of 1 % (about 2500)

of retail shops, as does the ORG audit, seems to be inappropriate. Many of the drugs inour semiurban and semirural retail outlets sell drugs at extraordinarily high prices of

drugs of doubtful quality at that. The irrational pricing policies affect the poor, the

illiterate most.

To be fair to the ORG retail audit, it never claimed to meet these deficiencies, although

they do not, understandably, mention their shortcomings. The robustness of this sampling

forpolicy purposes is doubtful. As a tool for public policy making, and especially as atool for taking care of the health and medicine interests of the poor of India, it can be

even mindless to derive anything from it except to say that our pharmaceutical market is

riddled with large islands of irrelevancies and irrationalities.

So what does the ORG Retail Audit figures indicate? They indicate some broad

movement of the pharmaceutical market. What it says is it is monitoring what it has

managed to cobble together over the years, some data that is used by drug companies to

keep a tab on how the competition is doing. It is robust probably for what it does: namelyto give some idea of broad movements in prices, market share of therapeutic categories

information which may be of use for producers competing for a share of the market pie. Ittells manufacturers for instance what type of drugs and formulations, irrespective of the

rationality of its content, will be winners in the market place.

8.13 Who Should Monitor Drug Prices?

Given the enormous number of formulations22

, the multiple prices and the vastness of thecountry, the NPPA is not geared to deal with the complexity, especially to find and

percent on 4 bulk drugs, 2.5 percent on 5 bulk drugs and 9.5 percent on 5 or more bulkdrugs. Appaji as cited before.

22

Considering that ORG audits about 280 top companies, with each company having anaverage of 60 brands and each brand having a line extension of at least 3 stock keeping

units, this would mean, a monthly price monitoring of 280 * 60 * 3 = 50,400 packs. This

is a mammoth task for any company.


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monitor which product prices are zooming and which bulk drugs have reduced in prices.

This probably explains the gap between the prices of controlled bulk drugs falling in the

market and the fact that formulations based on the bulk drug still continue at the originallevels instead of being sold at reduced rates. Let us be clear neither is the ORG-MARG

apparatus geared to monitor price movements.

Drugs, low or high priced, affect the poor negatively in a country where recourse to

public health systems is a dismal option. Even the so-called affordable drugs are

unaffordable for most poor of the country, even for routine afflictions. The PP 2002 will

only aggravate this disparity.

An important issue that has recently emerged is the question of ownership of ORG-

MARG. From information available at the time of writing ORG_MARGs pharmadivision is sold to IMS -- an internationally known pharma market research company.

(ORG-MARGs other business is now part of AC Nielsen which is owned by a Dutch

Publishing Company VNU. VNU is a billion dollar Dutch media and information

company with leading market positions in marketing information, media measurementand information, business information and directory publishing.). One does not have to

be a conspiracy theorist, but how ethical is it for the Government of Indias policy makers

to rely on data collected and disbursed by a multinational with little understanding ofreaching health to all the people of India? Why cannot the Government have its own data

collection mechanism? The NSSO surveys have not done badly over the years.

9) Who Makes the Money in Indian Pharma Market: the Stranglehold of Retail

Pharmacists

Primary bulk drug manufacturers and formulation manufacturers and do make a

handsome return on their investment. We have seen above the scope of markups. In fact

one of the most vested interests in the pharma market who would resist a rational pricingand drug policy tooth and nail are the retail pharmacists and their lobbies. This is because

irrational drugs and tonics and syrups often enjoy 500-1000 percent trade margins. Now

these margins are available even in generic drugs, which are otherwise rational. A fact

acknowledged by the NPPA in its letter to IDMA appended as part of the governmentspetition. The situation in this regard in small towns and taluka level places and in states

with relatively weak drug administration is really alarming. Drug producers are at the

mercy of retail pharmacists (at last count more than 500,000 all over India). But in thisthe drug producers are also to be blamed. They bribe doctors as well as retail pharmacists

to push sales. Retail pharmacists refuse to sell products of particular companies if

margins are not increased.

Pharmacy owner Ranjit Ranawat smiles as he recalls how he surprised hiswife one day with a new, 29-inch color television, courtesy of

GlaxoSmithKline PLC's India unit.


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How did he get it? He ordered 600 vials of Fortum, an antibiotic, and 100

boxes of Ceftum, a drug for urinary-tract and respiratory infections.That's about 10 times as much as he normally would stock.

Incentives to buy large quantities of prescription drugs have become

commonplace in India, where thousands of drug manufacturers compete

for shelf space and the country's half-million pharmacists wield anunusual amount of clout.

Pharmacists in the U.S. and other developed countries have little influence

over the volume of prescription-drug sales. There, the marketing push

usually targets doctors, the main legal conduit for prescription drugs. In

India, many patients are too poor or too busy to see a doctor and oftenrely on local pharmacists for medical advice. As a result, powerful drugs

are routinely, and illegally, sold over the counter....

...German Remedies Ltd., an Indian company that manufactures products

under license from GlaxoSmithKline's SmithKline Beecham unit andScheringAG of Berlin, among others, recently offered a promotiondubbed "Mega Merchants: Sell and Enjoy." In exchange for buying three

boxes of Primolut-N, a Schering hormone prescribed for menstrual

irregularities, and several other drugs, a retailer received a free box of theantibiotic amoxycillin, and a ticket for a drawing for 124 vacations in

Germany, Nepal and several Indian destinations.

8/7/2019 Chapter 1 Missing the Wood for the Tree

Chapter 1 Missing the Wood for the Trees: Drug Price Control and Pharmaceutical Policy 2002

Documents

Transcript of Chapter 1 Missing the Wood for the Trees: Drug Price Control and Pharmaceutical Policy 2002